If I understand you correctly (which may not be the case), you think of puts primarily as "cover", or - insurance, protection. But puts are also a vehicle for active speculation, for proactive bets on market decline. In this sense, high P may reflect bullish complacency, no?
And even just as a "cover" - wouldn't a point come when there may be too many C's and other longs for the "P"s to cover - even at close strikes?
Interesting thought about ranges. But - the markets - like SPX - were not truly in a range. For 2 years we see a series of higher highs, with the lows kind of catching up, giving the whole thing a wedge-like quality.
SPX looks more like a wedge than a range, imo. And yes, wedges sometimes "hound" - they break out the "wrong way". But more typically, such patterns end in a reversal.
classic low-probability, high-expectancy trade that speculators seem to hate
LOL! That was... well said. A higher expected return may justify a trade with a lower probability. It's sort of contraintuitive, but it makes sense. |
